BACKGROUND : Optimal contracting continues to dominate boardroom and dinner discussions
worldwide in light of the 2008 global financial crisis and especially in South Africa, due to the
growing income gap. Increased scrutiny is being placed on South African state-owned entities
(SOEs), as a result of the seemingly poor performance of SOEs. Some of the SOEs are reported
to have received financial bailouts from taxpayers’ money, while executives are raking in
millions of rands in remuneration, provoking some concerns on the alignment of executive
pay to company performance in SOEs.
AIM : The study will assist remuneration committees and policymakers in the structuring of
executive pay in SOEs to ensure alignment to company performance.
SETTING : The study sought to assess, based on empirical evidence, if there is a positive
relationship between Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
remuneration and company performance in South African SOEs in the period between 2010
and 2014. All 21 Schedule 2 SOEs were included in the study.
METHODS : The research was a quantitative archival research methodology. Correlation and
multiple regression analysis were the main statistical techniques used in this study.
RESULTS : Contrary to popular media, a positive relationship between CEO and CFO
remuneration (fixed pay and short-term incentives) and company performance in SOEs was
observed. Company size appears to be the key determiner of fixed pay in SOEs. The positive
relationship was mainly noted on absolute profitability measurements like EBITDA (earnings
before interest and tax and depreciation and amortisation) and net profit.
CONCLUSION : SOE remuneration committees and policymakers should maintain the positive
relationship; however, more emphasis should be placed on financial efficiency measurements
so as to enhance efficiencies in SOEs.
The study was conducted by M.N. (GIBS) as part of his
Masters in Business Administration research project in 2015.
M.H.R.B. (University of Johannesburg) was M.N.’s supervisor
and edited this article for publication.